As the government prepares to announce its last full budget before the 2024 general election, cryptocurrency experts are seeking to declassify cryptocurrency as a highly speculative tool to classify it as another asset class to benefit retail investors.
This would, explains Edul Patel, CEO and co-founder of Mudrex, “allow appropriate regulations to be put in place. Furthermore, like any other asset class, offsetting losses against gains would encourage retail participation.” So far, a large portion of investors are still in conflict about investing in cryptocurrencies, and “that will change with these progressive regulations,” Patel explained.
Echoing sentiments, Rajagopal Menon, VP of WazirX, said virtual digital assets (VDAs) should be classified as an appropriate asset class, similar to securities. The tax slabs and clearinghouse benefits that apply to securities as an asset class should also apply to crypto assets. “Securities are classified as an asset class based on the risks associated with them, and products range from low-risk government bonds to high-risk derivatives. As a result, VDAs must be appropriately classified and regulated so that investors understand the risks associated with them and invest accordingly,” according to Menon mentioned it.
While it was proposed last year that gains arising from virtual digital assets or crypto assets be taxed at a flat rate of 30 percent, a 1 percent tax deducted at source (TDS) on each transfer of such assets was introduced. Amanjot Malhotra, Head of State, Patthai, India said, “VDA exchange volumes in India have suffered significantly after the introduction of the 1 percent TDS, but the interest of Indians has remained largely unchanged.
Indian exchange volumes have fallen by around 90 percent while Indian users’ adoption of foreign exchanges has skyrocketed. The high rate of TDS, which was introduced to track the movement of crypto-assets, only drove transactions abroad.”
According to Patel, “the 30 percent tax is a very steep system that urgently needs to change” to get retail investors involved. As more retail investors join the ecosystem, cryptocurrency will move away from being a speculative tool, “and this should be the highlight of the cryptocurrency ecosystem during the union budget,” Patel feels.
Meanwhile, Malhotra said the high rate of TDS has left Indian consumers “trading on foreign exchanges, but VDA activity has not been tracked either. I appreciate and support the goal of tracking VDA transactions, but this goal can be equally achieved with a lower TDS rate of 0.01 percent.”
Experts felt that the 1% TDS tax on sales transaction tax should be abolished or repealed because it causes investors to lose capital with every trade and discourages potential investors from participating in this market. “The buyer deducts this amount from the amount owed to the seller. This essentially means that each trade will cost investors 1 percent of their capital. While any TDS amount in excess of taxes owed will eventually be refunded, it has had a crushing effect on day traders and their heads.” Investors money in the short term,” according to Menon. This may discourage investors from participating in TDS-compliant Indian exchanges in favor of foreign exchanges that do not deduct TDS.
This is crucial because appropriate adjustments to policies would boost industry sentiment, including users, exchanges and Web3. Menon further insists on the urgent need to classify the VDA as a regulated asset class, similar to securities, and to tax parity with equities and derivatives through Allow offsetting or carry forward losses. “The 30% threshold was set in response to comparisons of digital assets to highly speculative avenues such as gambling, betting, etc. VDAs are similar to stock trading, and require clear ownership and ownership of the assets and sufficient liquidity for transactions. Existing tax panels will only discourage and deter traders who have Appetite for Risk About Dealing in VDA Agreements.”
On incentivizing cryptocurrency as an asset class, Malhotra explained that the government “can move significantly in the direction of regulating cryptocurrency as an asset class and foster innovation in the country by supporting and encouraging Web3 startups that are licensed and regulated in India similar to what Dubai is doing currently.”
In an effort to make India a competitive country in the growing crypto industry, Ashish Singhal, CEO and co-founder of CoinSwitch, noted that “while last year’s federation budget was about recognition of cryptocurrencies, this year should be about refinement. We support the government’s intent to track and tax coding. However, it is necessary to implement progressive tax policies.”